New tax relief rules for & # 039; opportunity zone & # 039; investors
New tax relief rules for & # 039; opportunity zone & # 039; investors
The Trump administration is proposing rules for investors in a new program that says it could have a big impact in economically depressed areas across the country. Around 8,700 so-called "opportunity zones" have been established in all 50 states to attract investors and developers with tax exemptions.
The rules of the Department of the Treasury, issued on Friday, establish the period of time that people or companies should keep their investments in the areas to avoid paying taxes in the resulting benefits.
Administration officials say the goal of the program, established by the new tax law enacted last December, is to create businesses and jobs in low-income areas and lift residents out of poverty. Treasury Secretary Steven Mnuchin predicts $ 100 billion in private capital will be invested in the new areas.
"This incentive will encourage economic revitalization and promote sustainable economic growth," Mnuchin said in a statement.
But some critics say that the new rules and the way in which the program is configured will benefit real estate the developers and Wall Street funds, and will attract investments to the more affluent areas that need it the least.
"The real estate industry is completely excited and moved by this, and now it's paying through massive tax cuts," said Timothy Weaver, a professor at the State University of New York at Albany who has studied similar development programs.
He said the program "does not have much more effect than granting tax benefits to people who will invest anyway."
Under the rules, investments are open to individuals, corporations, partnerships and real estate investment trusts. Any type of business or real estate development is qualified as long as the regulators do not consider that it contributes to the vice: a liquor store or a massage room, for example. Participants can take their profits from unrelated investments and deposit them in a zone of opportunity fund, avoiding paying taxes on those earnings until the end of 2026. Depending on how many years they have the investment, they can reduce their eventual tax bill by up to 15 percent. hundred.
Investments within zones maintained for 10 years or more are totally free of capital gains taxes.
A new rule establishes a division of 70 to 30 to determine if certain companies are eligible for tax relief. Provided that at least 70 percent of the "tangible" property of a company is within an area, it is considered eligible even if the rest is outside the zone. An example would be the individual locations of a chain of restaurants, some inside and others outside.
With 30 percent of the properties allowed outside the zones, many of the new jobs could enter booming areas, Weaver suggested. Conventional economic development programs generally require that all the properties of a company be within the affected area, he said.
Brett Theodos, principal research associate of the Urban Institute, estimates that only about 10 to 15 percent of the areas will attract investment, and that about 10 percent could get 90 percent of the money invested.
The 8,761 census tracts, in all states, the District of Columbia and the five territories of the United States, now make official signs to investors, since the opportunity zones cover some 35 million people. According to the Census data, the zones have an average poverty rate of around 32 percent, compared to the national average of 17 percent.
The governors of the states and territories propose that the areas become zones of special development. All options, 100 percent of the proposed areas, were blessed by the Treasury Department after a four-month review.
The options "indicate only a minimal program orientation to disadvantaged communities with less access to capital," Theodos wrote in a research paper. "Low and moderate income residents will have to be able to afford to stay in their communities as areas are updated and not displaced, if they are going to benefit from the opportunities provided by the zones."
Census sections were eligible to become zones of opportunity if their residents met the average low-income requirements. Some treaties with higher average incomes were allowed if they are located next to the low income sectors. Those areas in better conditions, with more infrastructure and services, could be more attractive for investors.
The combination will work well, as seen by Maurice Jones, president of Local Initiatives Support Corp., a community development organization.
"From our perspective, the governors did an excellent job of choosing places that are in danger," Jones said in an interview.
The program has obtained bipartisan support. Even Democratic lawmakers, who fiercely opposed the tax legislation and retained their votes unanimously, like the program of opportunity zones found inside.
Supporters believe that the estimated $ 9.4 billion loss in revenue from the program's tax exemptions is a small price, which US taxpayers must pay indirectly.
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To read the proposed rules: https://www.irs.gov/pub/irs-drop/reg-115420-18.pdf
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